Public Bill Committee

[Janet Anderson in the Chair]

Clause 50

Power to provide for a pension scheme

Danny Alexander: I beg to move amendment No. 99, in clause 50, page 24, line 10, leave out from ‘State’ to ‘and’ and insert ‘shall establish a money purchase scheme’.
It is a pleasure to be back here under your chairmanship, Mrs. Anderson, with somewhat inclement weather conditions outside. I am sure that our discussion will not be so inclement, and certainly not as inclement as the weather in my constituency, where snow appears to be falling heavily as we speak.

Nigel Waterson: Good for the skiing.

Danny Alexander: Good for the skiing, as the hon. Gentleman has said. I will get back to the point.
The purpose of the amendment is to allow the Minister to clarify why clause 50(1) is currently drafted in such a permissive way. My amendment inserts
“shall establish a money purchase scheme”,
which is what the Government intend. There is no doubt about that, although if there is, then the Minister will surprise us all when he responds. My question, simply, is why should the Bill not say what we are establishing as the personal accounts scheme?
I am grateful for some advice offered to me on this point. It has been suggested that, in order for personal accounts to work, the phrasing that the
“Secretary of State may establish a pension scheme”
is a bit strange, in that it seems to be permissive rather than mandatory, which the Minister has acknowledged by nodding. The scheme concerned must be a money purchase occupational pension scheme. Would it not be better to say so?

Mike O'Brien: To clear up any doubts, although I doubt whether there are any doubts, we intend to use the power to create the personal accounts scheme, which will be a defined contribution occupational pension scheme. However, defined contribution occupational pension schemes take a number of forms. Personal accounts will have various unique features, particularly given the target audience, the way in which they will be organised and the way in which we are setting them up. We therefore took the view that rather than having the legislation say that the pension scheme was of a particular kind—thereby risking someone at some point deciding to take a judicial review as to whether our decisions fitted exactly with a particular definition—it was better to take a broad power and to be very clear about how we intend to use it.
There is no doubt that the understanding of the hon. Member for Inverness, Nairn, Badenoch and Strathspey is correct. That is what we intend, and there has been no deviation from the Government’s intentions. We have set out the power in this way because we do not want to raise legal risks at a later stage by trying to define the scheme narrowly. Personal accounts will be similar, but not identical, to other DC schemes. We should not pretend that it is a particular kind of pension scheme in the legislation, because some might say, “Well, the way you are working does not exactly fit that definition”. That is the only reason why we have taken that view. With that reassurance—the hon. Gentleman is entirely right about our intentions—I hope that he will withdraw the amendment.

Danny Alexander: I am grateful to the Minister—I almost promoted him to Secretary of State for a second—for his explanation. The clarification is exactly what I was seeking. Therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson: I beg to move amendment No. 25, in clause 50, page 24, line 10, after ‘scheme’, insert
‘which shall commence operation with effect from 1st April 2012’.
The amendment, unlike some, has the attraction of being incredibly simple and straightforward. All it does is to add to the beginning of clause 50 that the scheme should commence operations from April 2012. Since that is the Government’s stated policy objective, I imagine that the Minister will be happy to accept the amendment. I shall sit down now, if that is his intention.
Mr. O'Brienindicated dissent.

Nigel Waterson: The Minister is shaking his head so I fear that we have to argue the case a little more.
Mr. O'Brienindicated dissent.

Nigel Waterson: The Minister is shaking his head, so I fear that we must argue the case a little more.
From one point of view, the plan is already two years behind schedule. I have dusted off my copy of the final report of the Pensions Commission, chaired by Lord Turner. On page 400, it talks about an implementation time scale for the various reforms and compares international experience. In Sweden, for example, implementation of the new pension system, the premium pension system or PPM, took six years from the report of the working group—presumably the Swedish equivalent of Lord Turner and his colleagues—to the first year of contributions into the funded scheme. That included not only the introduction of the new funded PPM but the re-casting of the state pay-as-you-go system into an NDC system. The report concludes:
“Since we are not recommending such radical changes to the core state system, a more rapid implementation ought to be possible.”
The report then talks about New Zealand, where, even more surprisingly, the report of a working group was followed only nine months later by a budget commitment in principle, with implementation planned for just two years after that. It talks, however, about the possible slippage of that time scale, which I think has been true. The report importantly concludes that
“the Pensions Commission believes that it is reasonable to plan on the assumption that the NPSS could be in place and receiving first contributions by 2010.”
The NPSS was the original proposal that was replaced by personal accounts. We are already two years out from that date.
Being a sad person at heart, I was listening to Radio 4 between Christmas and new year and caught a bit of the “Money Box Live” programme, presented by the estimable Paul Lewis, a great expert who has followed many of our debates closely. He was interviewing Tim Jones, the new chief executive of PADA, who has given evidence to the Committee. He pressed Tim Jones hard on the implementation date for personal accounts. I managed to obtain a transcript of the interview. Paul Lewis said:
“There is an awful lot to do, isn’t there?”
Pausing there, I think we can all agree with that. He went on:
“This scheme is scheduled to start in April 2012, just over four years way. Is that a realistic target?”
Tim Jones replied:
“The honest answer to that is I don’t know yet.”
Paul Lewis then said:
“So there might be a delay?”,
to which Tim Jones replied:
“Well, it’s not a delay because I don’t know yet.”
He then talked about reviewing matters as the incoming CEO:
“I understand the desire for 2012 and so far I’ve not seen anything that says it’s unachievable, but I need to do that review and when I’ve done that review I’ll then be able to have a conversation about what a proper date is.”
The key part of the interview was where Tim Jones said:
“Because this is so hard what’s critically important is not exactly when it starts but that it starts well when it starts.”
In the final exchange, Paul Lewis said:
“So there is a possibility that in a few months time you’ll be going to ministers and saying my view is we cannot start this when you’ve scheduled it—April 2012. It will have to be another date in the future?”
To which Tim Jones replied:
“There is that possibility, yeah”.
Since then, Mr. Jones’ apparent concerns have to some extent been dissipated. In the oral evidence sitting, I asked him about the commencement date. He said:
“The policy intention is that the personal accounts scheme will launch in 2012, and it is my job, and the delivery authority’s job, to meet that intention. We have no evidence at this stage that that is unachievable.”——[Official Report, Pensions Public Bill Committee, 15 January 2008; c. 7, Q11.]
Indeed, when I raised the matter at Question Time only the week before, the Minister said:
“we intend it to begin in 2012, and the chief executive has been informed that that is what we intend.”—[Official Report, 7 January 2008; Vol. 470, c. 6.]

Mike O'Brien: There was a bit more emphasis on certain words.

Nigel Waterson: The Minister can read it out himself with the proper emphasis. I do not know whether you have ever seen the film “Downfall”, Mrs Anderson, about the last days of Hitler in the bunker, but the situation is reminiscent of the phantom divisions that were sent out to attack the Red Army and that were told not to come back alive if they did not win.
We still have a contradiction here. Let me stress that the official Opposition want the scheme to start on time. We want it up and running in 2012. Earlier would be nice, but nobody who has met Mr. Jones could be anything but persuaded by his massive competence and experience in these matters and by the extent to which he and his chairman, Paul Myners, appreciate the scale of the task they are facing. Nothing quite like this has ever been tried before, which I recall is a line from the movie “A Bridge Too Far,” but we will not go down that route.
So it is a massive challenge. There is still a missing link between what the Minister told Mr. Jones and what Mr. Jones told Paul Lewis. Very honestly, like any successful man of business, Mr. Jones has apparently initiated a review in his new job. He has the office furniture, he has the chairman, he has one or two non-execs, and things are gradually picking up, but he has reviewed the state of play. I have the impression that that review is taking a while, and it has certainly not been concluded yet. I would like the Minister to tell us about his understanding of the situation, because despite the slightly greater confidence that Mr. Jones exuded when he came to this Committee compared with the confidence that he exuded at the end of last month, he is clearly still in the midst of this review.
Perhaps the Minister will share with the Committee what he has been told about how the review is going, including when it is likely to be concluded, what the preliminary indications are, and whether he will publish the advice he gets when Mr. Jones’s review is finished. The eyes of the world are on us and, in particular, Mr. Jones. I have stressed our support for getting on with it in 2012, but the only thing that is worse than not starting on time is having a botched start, which is clearly something that concerns Mr. Jones.
The brief from the Equality and Human Rights Commission states:
“Like the Conservatives, we are keen to see personal accounts ready to commence in April 2012. We are extremely supportive of the new accounts and the benefit that they offer to the target market. It is imperative that the new scheme is in operation as soon as possible to allow people the opportunity to save for their retirement in a way that is not offered by the savings products currently on the market.”
I agree with every word of that. Indeed, the Minister’s own predecessor, now his new boss, made quite a good speech a little while ago when he was in the pensions job, making the point about what we might call the “planning blight” on people’s pension savings between now and 2012. There will be a significant period between now and then when people will still not be saving for their retirement. Such people will miss out on several years’ contributions, the benefit of which they will never be able to make up.
Frankly, the guy in the saloon bar who finds pensions difficult and puzzling will have another excuse for not doing anything at the moment, because he has read that in 2012 it will all be sorted. I am very interested in what the Minister has to say, particularly about Mr. Jones’s ongoing review.

Danny Alexander: I, too, heard the comments on the “Money Box” programme that the hon. Gentleman has read out. Being, no doubt, as keen a listener as him—I am sure that all members of the Committee are regular listeners to that programme—I was perplexed and concerned by Mr. Jones’s comments. In due course, Mr. Jones corrected those comments. Perhaps he did not do so as quickly as Admiral West, but it had happened when he gave evidence to this Committee.
Tim Jones is someone with a huge amount of professional skill and is held in the highest esteem and respect by those people he previously worked with, and so the amendment being debated should not be seen in any way as casting doubt on the competence of Mr. Jones and his team at PADA. The question is, if there were doubts in his mind—and he, no doubt, has discussed these with the Minister, and the Minister has reassured him, no doubt, about the deliverability of the timetable—then it is important that the Minister shares the pressures that may exist in terms of meeting quite a tight timescale.
As I understand it, there are a number of steps that need to be completed over that four-year period in order to ensure that the personal accounts scheme can be up and running. The contracting process for the administrative software and people to actually run the administration of the account, because it is quite naturally subject to European Union rules—we return to those and, no doubt, will return to the European Union again at some point—about public procurement. This is a process that—I understand from the procurement side of this—will take at least 14 months, and possibly longer, before that commissioning is completed. I guess, probably quite naturally, that commissioning process cannot start until this Bill has become law.
So there is a situation where, in an unknown period, this Bill will become law—I guess the Minister is hoping for May or June, when it has completed its passage in both houses. There is a period of slightly less than four years, in which that commissioning process has to be undertaken successfully, the team to put it in place has to be recruited and so on—which will take a bit of time—and then there obviously has to be appropriate testing to ensure that the system works perfectly before the start date of the scheme.
There are clearly some significant practical hurdles and tight deadlines that have to be kept to along the way to ensure the target date of 1 April 2012 is met. It seems to be me to be quite right that it should be met but, as the hon. Member for Eastbourne (Mr. Waterson) has quite rightly said, only one thing would be worse than missing the deadline, and that would be a botched launch.
It is quite right that the Minister should have to reassure the Committee that he is satisfied that there is sufficient time for all those practical steps I have described, and no doubt many other steps along the way to ensure the successful launch of PADA, to be met in the timescale—which will be slightly less than four years by the time this Bill, if it does, receives Royal Assent—so that we can be sure that the deadline the Government have quite rightly set for the launch of the scheme can actually be met.

Mike O'Brien: It is important to get personal accounts right—that includes to deliver it on time—but a prudent manager will recognise that events are something, as Harold Macmillan mentioned, that are not always in the control of those who would wish to have them under control. The policy intention is that the personal accounts should be delivered in 2012, and nothing we are aware of at this point would prevent that from happening. That has not changed. I had not tied myself down to April of 2012, but it does seem to be a reasonable date as a target to launch it on. But it may well be that for other reasons there are other times of the year that might be more appropriate. But as far as we are concerned, there is nothing we know that would prevent a 2012 launch.
So that is what we are aiming at; that is what we expect to hit, and Tim Jones has been brought from the private sector in order to ensure that we have a senior executive who is able to deliver a project of this kind on time, on budget, and to enable it to create the mechanisms to deliver personal accounts, bearing in mind that PADA itself will not deliver personal accounts, bearing in mind that PADA itself will not deliver personal accounts. I can give that reassurance.
Tim Jones has a background which has not involved having to weather the uncertain waters of politics, or politicians’ ability to salami-slice words—or, indeed, journalists’ encouragement of what appear to be innocuous comments which are then repeatedly referred to in Parliament. I agree that Paul Lewis is an estimable journalist who does indeed know how to do an interview and get a story, as he did on this occasion. Tim Jones has, however, assured me that he knows of nothing that would stop him from delivering in 2012, and he fully intends to see that that happens. I hope I can reassure the hon. Gentlemen on that point.
The reason I do not want the amendment in the Bill is that we have not fixed on 1 April 2012 as a precise date. That is a reasonable target date for the moment, but it may be better, for all sorts of reasons, including presentation of better dates, to move it a month or two one way or the other. We are still targeting 2012. That is when we expect to deliver, but I do not want to enshrine that in the Bill. Primary legislation is not the place to set out precise dates for implementation of reforms. It is the place to set out the principles of a reform and the approach to reform, and it is only sensible to retain some flexibility in the start date. Who knows what might happen over the next four years, or how the pensions landscape may change?

Danny Alexander: I just want to press the Minister on one point to do with the timeline. While I can see his point about not being ready at a particular date, I want to be reassured that he has looked at the public procurement timelines that are involved in this process and is satisfied, given all the legal restrictions on public procurement contracts of this size, that the process can be completed, implemented and tested in good time for a 2012 launch.

Mike O'Brien: We know of nothing which would prevent the public procurement timetables from being met within the time scale we are seeking. We do have four years, and that gives us enough time to go through delivery. I have seen how Government procurement—of computer systems and other things—has not in the past always been completed on time. That is also the case in the private sector. I cannot provide a cast-iron guarantee that every independent private company that has a contract is going to be able to do its job perfectly, and therefore it is useful to retain some flexibility.
At the same time, I do not expect them to fail to deliver on the contracts; if we expected that, we would not be signing them up. We expect that those who make arrangements to deliver personal accounts will be able to deliver on their contracts. The time scales are not so tight that they do not have some built-in flexibility, and we should therefore be in good time to be able to deliver this project.

Nigel Waterson: I am sorry to say that I am not at all reassured by that answer. First of all, the suggestion that it could even be December 2012, and not necessarily April. I agree with the Minister that April is the logical time to start, because it chimes with the tax and accounting years, and so on. Although Paul Lewis is a prince in his profession, I take the Minister’s point about journalists. I think the Minister’s point about Tim Jones’ comments to Paul Lewis got it the wrong way round. It is because he is not a politician that he does not have that natural guile to try to disguise the reality. That is the point.
There are two things we do know for sure, unless the Minister has something up his sleeve. One is that between now and 2012 there will be an election and a new Government—hopefully a Conservative one—and almost certainly a new Minister in charge. Because we have our ambitions to win that election, I take the Minister’s point that a new Minister would have the same concerns about putting a start date on the face of the legislation. I have a sneaking suspicion that some poor devil—it could even be me—arrives on day one after the election as the Pensions Minister and very near the top of his in-tray will be a report from PADA saying we cannot possibly do this by 2012 and these are the reasons.
I think it is time we nailed this down because I have reached the age where I do not like surprises. Let me offer a deal to the Minister. I am prepared not to press this amendment to a Division if the Minister will agree to share with us—and we do have a legitimate interest as the official Opposition—the results of the review that Mr. Jones is conducting. That seems fair. If he wants to suggest doing it on Privy Council terms, I would not object. I do not know what the hon. Member for Inverness, Nairn, Badenoch and Strathspey thinks.

Danny Alexander: The suggestion made by the hon. Member for Eastbourne is wholly sensible. If there is a review being undertaken it should be shared with spokespeople for the opposition parties or on whatever basis the Minister thinks is appropriate. This is a critical issue and if there are problems to be identified by PADA I think we, too, ought to know about them.

Nigel Waterson: I am grateful for that intervention. It is simply a matter of good governance and of consensus. If this consensus process is to have more than lip service paid to it by Ministers, on something as important as this and something as nuts and bolts as this—there is no great politics in this issue—we all want to play our part in making sure that this happens on time and properly. I am happy to give way to the Minister but I will not press this to a Division if he is prepared to give us that undertaking.

Mike O'Brien: It is a matter for the hon. Gentleman whether he presses this to a Division or not but as I understand it there is not going to be a report to publish or share. What the hon. Member has already done, I understand, is talk to Tim Jones. I would be very happy for him to go and discuss these issues with Tim Jones and Paul Myners. That invitation extends to the hon. Member for Inverness, Nairn, Badenoch and Strathspey. The hon. Members are able to discuss these issues with the managers of PADA, on the basis that any commercially confidential information will be kept confidential. I am not aware of any final report or anything that I am able to share, so I am not in a position to do so.
What there will be is an ongoing process of Tim Jones looking at delivery projections, devising plans for delivery, ensuring that timescales are met and, in due course, revising those timescales and plans to meet managerial issues that normally arise in the development of a project of this kind. Throughout that process, on the basis of consensus, I am very happy that either hon. Member can engage with PADA. Indeed, I know Tim Jones and Paul Myners would welcome that degree of interest from our leading politicians who have shared the process of creating PADA and personal accounts. I hope that provides sufficient reassurance. I fear I cannot go further than that. I hope he can withdraw his amendment but that is a matter for him.

Nigel Waterson: I am not sure that takes me a lot further. Let me explain why. Yes, we have already had some discussions with Tim Jones and Paul Myners and have every intention, as do they, of continuing those discussions. It is sensible from both their points of view, as well as ours, that in a massive undertaking like this, which in anyone’s view is going to straddle another general election, the Government and the official Opposition should both be in the loop about what is going on. I was not suggesting that Mr. Jones is going to produce a report of the sort that might be put in the Library of the House of Commons.
However, unless he is doing the review on the back of a fag packet, I assume that he is going to produce some internal conclusions and I assume that he is going to share them with Minister, perhaps just in the form of a two page letter. Even a one-paragraph letter that says, “Not on your life mate, there is no way we can deliver this by 2012, you’ll be lucky to get it by 2015”, would be worrying enough. All I am saying is that the Minister should share that with us as part of the consensus process. Unless the minister can give us that undertaking, I will seek to press this to a division. I do not know if that finds favour with the Liberals as well, but that is my intention. Clearly nobody has a review without coming up with some conclusions, and the results of the review ought to be shared with us. We ought to know anything that the Minister knows.

Mike O'Brien: I am not unhappy that the hon. Member for Eastbourne should know broadly what is going on. I cannot understand quite why he thinks that he is not going to be told the conclusions by Tim Jones. We have ongoing project management. There will be things on paper that Tim Jones works to and there will be plans and proposals that he will have negotiated with the board. I do not know of any reason why he should not share those with the hon. Gentleman. The best approach would be for him to go and talk to Tim Jones about how best he would want to do that. I am not prepared to take it any further than that. There is no wish on our part to be other than appropriately commercially confidential. I have no great problem with sharing basic commercial issues with either the hon. Member for Eastbourne or the hon. Member for Inverness, Nairn, Badenoch and Strathspey providing that they are kept confidential. I have made that clear and I think that that should be enough. It is a matter for him whether he wishes to press it to a vote.

Nigel Waterson: I do not want to labour the point—there may be a feeling that I already have—but I have one final thought. I entirely take the point about commercially sensitive information; there is no way that I want or need to have access to that stuff, nor I suspect does the hon. Member for Inverness, Nairn, Badenoch and Strathspey. If the result of the review is a conclusion by Tim Jones, whose judgment and experience I totally respect, that this cannot be delivered on time, I want to know almost as soon as the Minister knows. That is what it boils down to and that is probably why we will have a division on the amendment.

The Committee divided: Ayes 3, Noes 8.

Question accordingly negatived.

Nigel Waterson: I beg to move amendment No. 157, in clause 50, page 24, line 13, at end insert—
‘( ) A scheme established under this section shall not be subject to the requirements to obtain audited accounts and an auditor’s statement about contributions under regulations made pursuant to section 41 of the Pensions Act 1995.
( ) The Secretary of State may make regulations requiring that the trustees of a scheme established under this section—
(a) make a declaration regarding the scheme systems and controls, and
(b) appoint a reporting accountant to review the scheme’s systems and controls and obtain a statement from such reporting accounting about their design and operation.’.
I hope this will not be as controversial an amendment, but it may take a while to explain it and in the course of explaining it, even I may begin to understand some of the finer points behind it. It is a bit tech-y, but here goes.
I take absolutely no credit for this, it is entirely sponsored and put forward by the Institute of Chartered Accountants in England and Wales, a body this Committee should hesitate to argue with on these matters. Amendment 157 seeks to set out exactly what kind of independent scrutiny the Government intends to have for the personal accounts scheme. We can all agree there has to be independent scrutiny and the non-accountants among us might assume that should just mean an annual audit of the traditional kind, which will ensure that the millions of new members in the scheme get their proper entitlement, that the contributions are correctly accounted for and broadly that the administration and financial probity of the whole thing is as it should be. The Institute of Chartered Accountants tells me it is
“very concerned that a national scheme such as the personal accounts scheme cannot be audited within the rules applying to occupational pension schemes”
and that the scheme should instead be required to have what it calls
“a controls-based assurance review.”
I hope no-one intervenes to ask me what that is, but I hope I will be able to give a clue later on. I understand there has been some contact with officials on the technical aspects.
Mr. O'Brienindicated assent.

Nigel Waterson: The Minister nods, so it may be that he could put me out of my misery now by popping up to say that he accepts the amendment. Let me just explain for the benefit of the Committee and those outside what is behind this.
As I understand it, if we do not have something like amendment 157 the assumption will be that the audit requirements of existing pensions legislation will apply to the personal accounts system. It is not a subject that has been keeping me awake at night, but on the face of it, that appears sensible; apparently it is not. It is partly because personal accounts will be such a different animal from traditional pension schemes, not only because of the order of magnitude but for all sorts of other reasons.

Mike O'Brien: It might assist the hon. Gentleman to know that we are still looking at the proposals we have had from the institute. We want to ensure that the method of dealing with the accounts is the best that can be achieved. It is true that this scheme will be of a different scale and type from other schemes and therefore we need to look at the particular scheme. We do not need primary legislation to disapply the provisions of the Pensions Act 1995, we can amend these as necessary either by regulations under section 41 of that Act or under clause 106 of this Bill. I understand his point and we are still considering this, but we wish to look at what is a complex issue in more detail before taking a final decision on it.

Nigel Waterson: I am grateful for that indication and although I will go into a bit more detail, I will go into considerably less detail than I might otherwise have done. There will be people out there who will be totally tantalised until the end of time as to what I was coming to say. Although the Minister’s intervention was partially helpful, and I accept—I think the institute accepts—that it is perfectly possible to deal with this point by regulation, the institute wants a clear idea of where the Minister is going on this. I share that concern.
I will touch upon the main points of concern to the Institute. In a traditional audit of possibly one million employers—of which many thousands will be small employers—often with very mixed and different record-keeping systems and so forth, all the contribution records of all those employers would need to be checked so that an auditor could give an opinion. This is vastly time consuming and vastly expensive. The ICAEW says it is firmly of the view that it would be impractical and that the enormous cost would be of little benefit to the members who would have to bear it. The basic point it is making is that there is a confusion between an audit and an overall check on all internal systems and controls. What would be meaningful for savers and personal accounts would be to call for a third party to check that the administration is conducted properly. It calls this assurance engagement, which looks at all the internal controls—operational as well as financial.
There is a precedent apparently. According to the institute, following the introduction of internal controls requirements under the 2004 Act—who could forget it?—a number of institutions that work for pensions schemes, trustees in managing scheme administration, scheme investments and custody have adopted this controls-based approach. It says that it would be cost-effective, and will provide the appropriate comfort to job holders and savers. I think the institute has a very good point. Moreover, having a provision whereby this is reported to Parliament, perhaps annually, also makes a lot of sense.
I accept the Minister’s point that this could, and perhaps should, be dealt with by regulation. But the institute could not be clearer in its own conclusions and who am I—or indeed, who is the Minister?—to argue with that expert view? I therefore press the Minister to perhaps be a little less coy about telling us and, in particular, the institute where his thinking is going on this and how he intends to deal with it.

Mike O'Brien: Clause 50 enables the Secretary of State to establish the fact that this scheme is a trust which, like all trust-based schemes, will be run in the interest of its members. The Institute of Chartered Accountants in England and Wales has raised this particular issue with my officials; I am grateful to them for the help that they have given.
The amendment seeks to change the way in which the Pensions Act 1995 applies to the personal accounts scheme. It is based on the premise that the requirement for an auditor’s statement about contributions would be costly and difficult to compile due to the sheer numbers of employers participating in the scheme. We acknowledge that this is complicated by the fact that the employers in the scheme are likely to be small employers who may not necessarily employ an accountant. An auditor may not be satisfied that contributions have been paid properly and would therefore only be able to compile qualified accounts, which would not be of much benefit to the members.
The principle of proper accounting is paramount and all equivalent schemes should be subject to the same, or effectively the same, level of scrutiny and transparency. That is an important point. As part of having confidence in personal accounts we need to ensure that we do not have a situation where either the accounts are unduly qualified or, alternatively, a system of accounts which raises questions about personal accounts.
The institute has a point in terms of its view, but as yet, we are not necessarily convinced that its approach is one that we can sign up to wholeheartedly. There may well be other options that we wish to examine before reaching a final conclusion. I have been assured that officials are looking at this issue with care. They have not yet reached a final conclusion, but it is safe to say that they have considerable sympathy with the concerns of the ICAEW and they are to let me have advice in due course about whether the approach favoured by the ICAEW, or an alternative approach for dealing with the problem they have identified, would be the best way forward. We could then deal with that through regulations. I hope that with that reassurance the hon. Member will be able to withdraw his amendment.

Nigel Waterson: I am grateful to the Minister for reassuring me. He has put my mind—and, I hope, the institute’s—at rest to the extent that this is being looked at very carefully. There is considerable sympathy for the proposal, but also an underlying acceptance that we cannot just work on the basis of the existing audit requirements and that there has to be a solution. This is one of perhaps two possibilities. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 50 ordered to stand part of the Bill.

Clause 51

Scheme orders: general

Nigel Waterson: I beg to move amendment No. 26, in clause 51, page 25, line 15, leave out subsection (5).
This is a rather simple probing amendment. It is not entirely clear why such a scheme order should exclude liability for a trustee, officer or employee of the trust arising from administration or management, or provide an indemnity for such liability. It might be merely that there is a precedent and that is what happens already. However, there will, potentially, be significant liabilities for trustees, officers and employees in running the scheme, so one wonders why they should be excluded from liability. If they are not liable, who is?
Putting it another way, and looking at the analogy of non-executive directors, is there a prospect of insurance being obtained against that liability? If there is a liability, that presumably means that somebody, somewhere—the members, I guess—have lost out. If they cannot look to the trustees, officers or employees, who would they look to? That is a very long question to the Minister, which I am sure that he will answer in his inimitable fashion.

Danny Alexander: I will not detain the Committee long, but this is an interesting issue, and I will be interested in the Minister’s response to the questions that the hon. Member for Eastbourne has rightly posed. The deregulatory review of private pensions also looked at this issue and said:
“We believe that as a quid pro quo for the increased visibility and controversy surrounding trustee duties, all pension scheme trustees should be covered, at employer or scheme expense, by appropriate indemnity insurance or assurances from the employer and/or scheme, that would at least cover the cost of litigation so long as the trustee is not found to have acted improperly.”
I thought that subsection (5) was, essentially, trying to follow the advice that there should be some degree of indemnity. While some protections already exist for trustees who have acted in good faith, there is unease as to whether the law would continue to be interpreted as it is at the moment. There seem to be good reasons for ensuring that trustees have that degree of protection to allow them to carry out the important role that the Bill allocates to them. When drafting the Bill, did the Minister read what the independent reviewers said in the deregulatory review?

Mike O'Brien: I agree with the hon. Member for Inverness, Nairn, Badenoch and Strathspey that there has been concern that trustees should not be the subject of undue liability in respect of their actions. They will retain an obligation to fulfil their fiduciary duties. However, it is anticipated that there will be an indemnity to cover them in respect of any decisions that they make that are other than flagrant and deliberate breaches. They will be fully liable for any flagrant or deliberate breach of their duty, but they should not be liable for having made decisions with which others merely do not agree. There could be all sorts of legal challenges to such decisions, and the trustees might end up having to defend themselves individually.
It is right that indemnities should cover the trustees for the costs of any such actions. PADA or, in due course, the Personal Accounts Board, should be able to pay any legal costs that the trustees incur, should they be challenged on the basis of any decisions that they have made after due consideration. As the hon. Gentleman says, the board will have a high profile and a lot of people will be interested in its decisions on investment and other matters. We do not want trustees dragged into court unnecessarily, and if there are court cases, it is right that an indemnity should cover them. Trustees are indemnified in many existing private pension schemes. There are exclusions to their liabilities. We will be broadly following such a precedent, which does not apply to all schemes, but does to a lot of them.
It is fairly straightforward and standard for trustees to have indemnities. We want to ensure that we attract high-quality trustees who are not going to feel that they will end up having to pay a lot of money in court fees because someone has challenged a decision that they made properly. That is the basis for the provision. I appreciate that the amendment is probing and I hope that I have addressed the concerns of the hon. Gentlemen.

Nigel Waterson: The Minister has not let me down. I am reassured by his answer, as I thought that I would be. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 51 ordered to stand part of the Bill.

Clause 52

Consultation of members and employers

Danny Alexander: I beg to move amendment No. 154, in clause 52, page 25, line 26, leave out subsection (3) and insert—
‘(3) The Members’ Panel is to consist of such members and future members, or persons representing the interests of members and future members, as the trustees may appoint.
(3A) The trustees must appoint one of the members of the Members’ Panel to be the chairman of the Panel.
(3B) The trustees must secure that the membership of the Members’ Panel is such as to:
(a) give a fair degree of representation to members and future members; and
(b) respect diversity among members and future members of the scheme.
(3C) The chairman and other members of the Members’ Panel are to be—
(a) appointed for a fixed period, and on other terms and conditions, determined by the trustees, and
(b) paid by the trustees in accordance with provision made by or under the terms of appointment.
(3D) But a person may be removed from office in accordance with those terms and conditions only with the approval of the Secretary of State.
(3E) A person who ceases to be a chairman or another member of the Members’ Panel may be re-appointed.
(3F) Representations by the Members’ Panel—
(a) the Trustees must consider any representations made to it by the Members’ Panel.
(b) if the Trustees disagree with a view expressed, or proposal made, in the representations, it must give the Members’ Panel a notice to that effect stating its reasons for disagreeing.
(c) the Members’ Panel may publish such information as it thinks fit about any representations made by it to the trustees.
(d) where the Members’ Panel publishes information about any representations made by it, the trustees must publish any notice it gives under subsection (2) in respect of those representations.
(3G) Advice and research functions of the Members’ Panel—
(a) The Members’ Panel may, at the request of the trustees—
(i) carry out research for the trustees;
(ii) give advice to the trustees.
(b) The trustees must consider any advice given and the results of any research carried out under this section.
(c) the Members’ Panel may publish such information as it thinks fit about advice it gives, and about the results of research carried out by it, under this section.

Janet Anderson: With this it will be convenient to discuss the following amendments: No. 115, in clause 52, page 25, line 26, leave out ‘panels are’ and insert ‘employers panel is’.
No. 27, in clause 52, page 25, line 26, leave out ‘by order under section 50, or’.
No. 101, in clause 52, page 25, line 27, at end insert—
‘(3A) The members’ panel shall be comprised of members of the scheme nominated and selected by a process including all the members of the scheme or an organisation representing the members.’.
No. 64, in clause 52, page 25, line 28, after ‘panel’, insert ‘and employers’ panel’.
No. 155, in clause 52, page 25, line 30, leave out subsection 5.

Danny Alexander: Amendment No. 154 is lengthy and the purpose behind it might take a little time to explain.
The Bill naturally and rightly contains provisions in clause 52 for the consultation of scheme members and employers, and the establishment of a members’ panel and an employers’ panel. I am grateful for advice and suggestions from Age Concern about the amendment, which tries to set out in more detail what the role of the members’ panel should be, how it should work and, particularly, the fact that it should be properly resourced.
The members’ panel will have a big role in ensuring that the scheme acts in the best interests of members. It is thus essential that the members’ panel is given both appropriate powers and sufficient resources to carry out its responsibilities and meet its obligations effectively. Giving the panel the power to make formal representations and the right to a formal reply would mean that it could quite simply not be ignored. The Minister might say that the panel would not be ignored in practice, but the amendment would ensure that it could not be ignored.
Any good approach to consultation, in which many hon. Members will have been involved in their constituencies or elsewhere, will encourage the sponsoring body to seek the panel’s views at an early stage. Certainly, the principles of good community consultation would suggest not getting to the end of one’s deliberations and reaching conclusions, and only then asking people what they think. A proper consultation engages with those who have a right to be consulted along the way, thus leading to better policy making. That reduces, but cannot totally eliminate, the likelihood of serious disagreements emerging late in the process. Such an approach would also demonstrate to members and potential members that the panel was independent of trustees.
The amendment would empower the panel to carry out research, and that would ensure that there was a good evidence base for its advice. Employers and the financial services industry, which quite properly takes a great interest in the development of personal accounts, as members of the Committee will be all too aware, are likely to have access to considerably greater expertise and financial resources than members and potential members. A statutory right to carry out research would ensure that funding was available to redress the balance and to plug the knowledge gap from a perspective that had scheme members’ interests at heart. Without such a statutory right, any research funding would be available only at the discretion of trustees. The right would also ensure that the panel was able to research the views of members and potential members so that it could represent their views fairly, although I am sure that the Minister would envisage that anyway. PADA is already doing some research among potential members and is seeking public opinion to try to understand how people view the scheme.
Meaningful participation in processes that are designed to make policy often requires detailed work to analyse the possible impact of future developments. I am told that the experience of existing panels is that the work requires individuals with both a strong personal commitment and the time to devote to understanding issues that are often highly technical. That is why it should be possible, when necessary, for trustees to pay panel members more than just expenses. If a substantial time commitment or effort is required for a particular piece of work, it needs to be made clear that panel members can be paid so that they are enabled to participate fully. Without that, there will be a risk that the panel will either attract only those who can afford to take time off, or that its advice will be rushed or ill-thought, neither of which would be the Minister’s intention when seeking to establish a members’ panel.
In addition, there is an argument that membership of the panel should not necessarily be restricted to people who are current members of the scheme because it should also be able to take account of the needs of future members, who are specifically referred to in the principles of PADA, which will be debated under clause 62. Such a measure would be unduly restrictive, such as if a panel member had retired and was no longer a member of the personal accounts scheme. The panel will also benefit from the involvement of people with particular knowledge and skills who might not be attracted from within the membership base. Research by the National Consumer Council found that people sometimes simply wanted to be confident that their interests are being fully represented by others.
The amendment would also provide for the right to reappoint members. That right, within the context of an overall maximum term of appointment, would avoid any suggestion that an individual could be leaned on. Such a practice is followed in other bodies.
The amendment is detailed because it relates to an important aspect of how the system works. It seeks to reflect the Government’s intention properly. I hope that it will give the Minister the opportunity to put on record that he has detailed intentions in many of the areas to which the amendment refers. Those areas include how the system will work, how panel members could be appointed, how their work could be resourced, and how the contribution of panel members could be properly paid for so that we were able to attract the broadest range of people as members.
Other issues are the fact that the panel’s terms of reference and the way in which it is constructed should not deter people who might not have the resources or personal means to take lengthy periods of time off work, and that outside experts who might not necessarily be members of the scheme could also be involved in the panel when appropriate so that it could act as broadly and independently as possible in the interests of members and with full consultation with the trustees from the beginning.
An area to which we will no doubt return is the fact that while the Bill sets out clear principles for PADA, it does not set down principles for the Personal Accounts Board to follow, when it inherits the scheme and takes it over. The members’ panel will have a critical role in ensuring that members’ interests continue to be at the heart of what we expect to be a scheme that will last for a long time.

Nigel Waterson: I am grateful to the hon. Member for Inverness, Nairn, Badenoch and Strathspey for probably taking less time to introduce his amendment than it would have taken to read it out.
Amendment No. 154 is very detailed. It is a tad prescriptive, so we probably would not join him in voting for it, if he pressed it to a Division, although I got the impression that he was just trying to draw out a comment from the Minister on its contents. The amendment has Age Concern’s seal of approval, which is very important.
The hon. Gentleman is right that the role of the members’ panel is important now, as it will be in the future. He is right to say how important it will be when PADA changes to become the board. He is also right that there is no point in setting up a members’ panel if it is going to be ignored and not listened to—if it is just to look good. He has not tabled a similarly detailed amendment about the employers’ panel, which is a pity, in a way. Perhaps he takes the view that employers can look after themselves on these matters and have sharp enough elbows to ensure that they get their point across.
I wish to speak fairly briefly to my two amendments in the group—amendments Nos. 27 and 64. The purpose of amendment no. 27 is really to probe the Minister. It would leave subsection (3) as stating that the composition and functions of the two panels would be determined by the trustees under an order. I do not see why we should have an alternative in there for the Secretary of State to make an order, which is how I read the measure. If independent trustees are being set up, they should be in charge. The Minister is looking puzzled—that must mean that either I have it horribly wrong, or he has suddenly realised that there is a gaping flaw in the Bill.

Mike O'Brien: There is not a gaping flaw in our Bill. I was not entirely clear about the order. Under the hon. Gentleman’s amendment, the composition functions of the panel would be determined by the trustees under an order, but who would make the order? How would the trustees make an order? Such an order would usually mean a parliamentary order, so they would not be able to do that. Presumably, the amendment should refer to some sort of rules set by the trustees.

Nigel Waterson: This is the Minister’s Bill, not mine. I have not drafted it. It suggests that there are two ways to go:
“by order under section 50”,
which would be made in the traditional fashion by the Secretary of State—

Mike O'Brien: Let me clarify the situation. Our position is that the composition and functions of the panel can be determined either by an order under clause 50, or by the trustees acting under an order under clause 50 so that they may make the detailed rules. Either way, there will be an order under clause 50. Clause 50 would be applied in either case. Under the amendment, there would be no clear order-making power.

Nigel Waterson: I am grateful to the Minister for clarifying that, but he has not dealt with my central point: why not just leave it to the trustees? However, I am glad that we have sorted that out because it was ruining my day. Why should the Secretary of State be involved in this at all? Surely, the ideal situation is to set up the trustees—good, competent people at arm’s length—who can make these decisions, rather than being interfered with by the Secretary of State.
I appreciate that the amendment would make an even bigger nonsense of subsection (3), but if the Minister accepts my basic premise, he can go away and use all the resources of the Department to draft an amendment that is going to work. I do not understand why Ministers should be involved in this at all. That deals satisfactorily, or otherwise, with amendment No. 27.
Amendment No. 64 concerns the functions of the members’ panel under subsection (4). It is conceptually very important that the members’ and employers’ panels are seen as equally important with regard to advice and the role that they have in developing personal accounts. As I said, one of my objections to the very long amendment tabled by the hon. Member for Inverness, Nairn, Badenoch and Strathspey was that it covered the members’ panel but did nothing for the employers’ panel.
Subsection (4) says that one of the functions of the members’ panel—it does not mention the employers’ panel—is to nominate individuals to be members of the trustee corporation. This is slightly academic because presumably anybody could nominate people to be members of the trustee corporation, just as it sometimes seems that anyone can nominate themselves or a relative for an honour.
If we are to have a members’ panel, and to take it seriously and listen to it, and if we are to have an employers’ panel, and to take it seriously and listen to it, they should have equal status wherever possible. I cannot think of a good reason why the Minister should not accept that amendment, which I commend to him.

Nick Ainger: I want to speak briefly about how members of the members’ panel are to be selected. I have been briefed by UNITE, which is not the organisation comprising the Transport and General Workers Union and Amicus. This UNITE got its name a lot earlier. It represents BT and Post Office pensioners and has existed for several of decades. It is in negotiations with Unite, the trade union, about the name.
I am sure the Minister is aware of UNITE’s submission. It makes the very good point that it is extremely successful in maintaining contact with members of both those large pension funds and keeping them well informed of developments. It suggests that there must be some form of election. That is the way in which it has worked for a long time—it was set up in the 1920s as a pensioners’ organisation for the Post Office.
I would be interested to hear how my hon. and learned Friend the Minister thinks that members of this members’ panel will be chosen. Will that occur through election or by nomination? If so, who will nominate these people? What is the direct connection with the members of the scheme? How will those who are contributing to the scheme be kept informed of developments? I recommend that he and his officials read the UNITE briefing, if he has not already seen it

Mike O'Brien: Clause 52 deals with consultation with members and employers. The Government believe that engagement with all participants in the scheme is vital for success. We have designed the Bill so that the scheme order must require the trustee to make and maintain arrangements for ongoing consultation. We need an order to oblige or enable trustees to do things.
This scheme will have a very large and diverse membership with many thousands of participating employers. It is vital that there are good channels of communication between them and the trustee to give and receive feedback, thus create a feeling of ownership among members. We consider the establishment of members’ and employers’ panels to be absolutely fundamental to the process, although that is by no means the only way that the trustee would communicate with members and employers.
The authority will consider how these panels should operate, including by looking at similar existing arrangements, such as those for the Financial Services Authority consumer and practitioner panels. Recommendations will be made on the constitution and remit of these panels, taking account of current best practice.
The answer to the point about election made by my hon. Friend the Member for Carmarthen, West and South Pembrokeshire is that I do not yet know what recommendations are going to come forward from PADA. Election is obviously one of the ways, and nomination is another, but questions then arise of how to go through the nomination process, which organisations will have the right to nominate, and how we use the process of getting to literally millions of members to enable some sort of election to take place.
I do not have final answers for my hon. Friend, except that the submission that he identifies is certainly one way forward of which we will take account. Also, we will want to look at other ways in which very large organisations are able to maintain the engagement and participation of their members. This will be a difficult process, which is why I am unable to be specific about exactly how this will be done. We have time to work this out, but we need to give him and others the reassurance that we see the process of setting up both these panels as absolutely fundamental. They should be set up in a way that commands confidence.
The intention of amendment No.115 is that while the composition and functions of the employers’ panel would be in the scheme order, the members’ panel would be given the freedom to decide its own functions. Amendment No. 27 would provide that the scheme order would require the trustee corporation to establish members’ and employers’ panels, but could not include anything about their composition or functions, because the intention would be that the trustee would make those decisions.
When striking a balance between legislative requirements and independence for the trustee, we need to keep in mind the scale of the scheme. Millions of members will be drawn from thousands of employers. Some will have a few members, while others will have hundreds or thousands of members. It is likely that many of those members will not have saved in a pension before. That will make the arrangements for engaging and involving members all the more important—and indeed, all the more complex.
This unique aspect of the scheme—and the importance of members feeling ownership of the scheme, if we are to the deliver our ambitions—means that Parliament and the Government have a legitimate interest in ensuring that there is a broad approach to employer and member engagement. I think that we have an interest in this. We want to know that that it is being done and how it is being done. We want to be satisfied that it will be done properly and adequately. That is why the Bill provides for an order under the clause to set the broad composition and functions of a panel.
I reassure hon. Members that it is not our intention that that would determine all the practical detail of how the panel operates. The panel members will be able to make arrangements with the trustee about how they can best represent members, and the methods of consultation and dialogue with the trustee. Therefore, while the order will set the functions of the panels, the panel members will have a significant say in how those functions are discharged.
Amendment No. 101 would provide that all members—or an organisation representing them—would have to be involved in the process of setting up the members’ panel. Amendment No. 154 goes into quite some detail on the constitution and function of the members’ panel and how it interacts with the trustee. It is, of course, essential that the members’ panel is designed to be as representative as reasonably possible. It is also important, however, that, given the unique scale and diversity of the potential membership of the personal accounts scheme, we do not constrain the options available for the authority at this early stage.
It is not for me to anticipate the panels’ work or advice. However, I would not, for example, necessarily want to restrict the scope of a panel to members of the scheme only at this stage. It might be desirable for a scheme of this scale to include room on the panel for national organisations, such as Help the Aged and Age Concern, or those with experience in promoting legal or consumer rights. We need to look at how this ought to operate, rather than trying to form a complete judgment at this stage.
I do not underestimate the challenge of ensuring that all members have a say in the nomination and selection of the members’ panel, for reasons I have already given. That is not to say I disagree in any way with the principle suggested by hon. Members opposite. In fact, I broadly agree. However, I want to ensure that we give the authority sufficient flexibility to consider innovative solutions to what can be a very difficult challenge.
I do not believe we should create primary legislation which, however well intentioned, will so restrict the options they can put to us that we will not be able to make amendments to it except via further primary legislation, even if we all agree that those amendments should be made. If we are to look at the detail of this, it would be better to do so either in regulations, which are more easily amended as times change, or by a broad-based order followed by decisions made by the trustees and, in due course, by others, including perhaps the members’ panels.

Danny Alexander: I understand what the Minister says about the need for flexibility in designing this, and I was encouraged by what he said at the beginning of his remarks about following best practice. In the interests of brevity, can I ask him whether the ideas contained in subsections (3F) and (3G) of the amendment—which relate to the way in which the representations made by the panel have to be listened to, and the advice and research functions of the panel—do in fact follow best practice, particularly relating to the financial services consumer panel? Are they are the sorts of things that he would like to see the panel carry out in relation to personal accounts under the Bill?

Mike O'Brien: Members of the trust board would want to have regard to the views of the panel. We would not want them necessarily to be bound in this sense. The trustees are going to have to make decisions. That is what they are there for. When they make decisions, they will no doubt listen to the views of the panel and the members. I suspect that if they went very strongly against either, they would have to have very good reasons for doing so.
However, we are creating a trust-based pension scheme here, in which the trustees have to make decisions. We can say, “Look, we are creating for you a larger scheme than anything that exists at the moment anywhere else in the country, and you probably have greater responsibilities than any other trustees”. One of those obligations is to have regard to the views expressed by the panels. I do not, however, think that we should change the decision-making capacity of trustees so fundamentally that we effectively create a new type of body that has to do what members’ panels say.
The members’ panels are a way of getting soundings. They are not a way to make final decisions. That responsibility must lie where the legal responsibility lies, and that is with the trustees. That is the way other pension schemes work. That is where trust comes from. A genuine sense of responsibility should lie on the trustees’ shoulders.
Amendment No. 64 would give the employers’ panel a similar function to the members’ panel to nominate members of the trustee corporation. The role of the employers’ panel is important. It will be charged with providing advice on matters relating to the scheme as they affect employers. It will be the main channel for consultation between the trustee and the employers. The requirement to have member-nominated trustees stems from the desire to ensure that the scheme is run primarily for the benefit of members. It is the scheme members who ultimately benefit from the introduction of the scheme, especially those people for whom no pension is available at the moment. That is why the Bill ensures that members will be able to nominate trustees, and this is in line with the current legislative requirements. Trusts are there for the benefit of members, not employers. They are beneficial organisations and the beneficial owners are the members. The trustees hold the organisation and its assets in trust for the beneficial owners. That is the way the system works.
All the individuals who form the corporate trustee will have the sole obligation to act in the members’ best interests, rather than representing employers or any other particular interest group. It will not be possible for the trustee to meet its duty of acting in the members’ best interests without taking account of employers’ concerns, but it is not appropriate to appoint members of the trustee with this as a specific role or indeed in any sort of representative capacity for the employers. Employers should not be represented on that board, because the trustees are all there to represent the members.
I want to say a brief word about the effects of amendment No. 27. The amendment as written provides that the trustees will determine the composition and function of the panels under an order. However, the trustees cannot make an order, this being the prerogative of Government. So they would have to set the detail out in some administrative document that would not necessarily be open to any debate, let alone a debate in Parliament. The trustees would later amend the rules to include this detail, but the panels must be established first because the trustees cannot make any rule changes without first consulting the panels. The consequence of this amendment, therefore, would be to delay setting up the panels and remove the public or parliamentary debate about their constitution and functions. I am sure that is not the intention of it, but that would be the consequence, so I just lay that out as a warning.
Turning to amendments Nos. 154 and 155, I note the reference to payments being made to the chair and members of the members’ panel and the points being made about appropriate recompense for those who are acting in that capacity. I would like to take this opportunity to say that I was looking to introduce an amendment to subsection (5) of this clause to make it clearer that all members of both employers’ and members’ panels could receive such payment for their time spent on panel duties and reimbursement of any necessary expenses.
As PADA will be advising on the constitution and functions of these panels, it would also consider and advise on what payments may be appropriate in order to secure the services of the most suitable people to be panel members. So I do want to flag up that, on this particular issue that the hon. Member for Inverness, Nairn, Badenoch and Strathspey is raising, I do propose to table an amendment that will address at least one of the points that he made in his intervention. I hope with those reassurances and some of the concerns about the detail of these particular amendments the hon. Gentleman will feel able to withdraw the amendment.

Danny Alexander: On the last point that the Minister made about the payments to panel members, I am reassured by what he said. What he is proposing—to bring forward another amendment to widen the scope slightly—will have a beneficial effect, particularly on the range of people who will feel able to take on the duties of involvement in a members’ panel. I do understand what he is saying about the need to think through the scope and range of the panel, and that is what he is asking PADA to do. That will be brought forward in regulations.
I would wish to stress again the importance of the point about research. The Minister has not addressed in his response the question of resources for the panels. Clearly, a practical arrangement must be reached. The advantage to having at least some reference to this on the face of the Bill, or a clear undertaking from the Minister that it will be included in regulations, is that it is important for the members’ panel especially—there is a difference, as the Minister accurately described, between the employers’ panel and the members’ panel—that it is able to commission and carry out research independently where it deems that to be necessary.

Mike O'Brien: Just to give the hon. Gentleman some reassurance, I take his point in relation to proper resourcing. It will be noted by those on PADA, who look at the detail of this, that we regard both the members’ and employers’ panels as vital. They will therefore need to be appropriately and properly resourced. He also makes a valid and interesting point about research, which I will consider further. I cannot give him any further reassurance on that, but I am sure that those on PADA who will be listening to these debates will be aware that there may well be a requirement that the members’ and employers’ panels should be properly informed. I am conscious, however—I am conscious, too, of the length of this intervention—that there are cost implications which need to be properly factored into it. Rather than trying to deal with that now, we should let PADA do it in due course and advise.

Danny Alexander: I am grateful to the Minister for that necessarily lengthy intervention and I am reassured. He is right that there has to be a proper balance between the costs found; no doubt PADA will bring that forward. However, an understanding now of the importance of the members’ panel having access to independent research is important. My other point, which relates to the intervention from the hon. Member for Carmarthen, West and South Pembrokeshire, concerns the process by which the panel members are chosen—the Minister has addressed that adequately in his response. It also relates to the way in which the views of the panel have to be listened to and responded to by the trustees.
The Minister is right in saying that there is a clear difference between the trustees, who are the sole people for taking decisions, and the panels, who have a responsibility to represent the interests of members and employers and to offer their views. However, it is important—this is something that will have to be borne in mind by PADA—that in constructing the relationship between the panel and the trustees, there are some clear obligations about how the trustees must receive and respond to representations that are made to them by the panel; that is the practice in some other such panels. I hope that those comments will also be noted.
Given much of what the Minister has said, I am happy to withdraw the amendment concerned. However I hope that those points will be noted on the record and by PADA as they go forward to construct the way that the members’ panel works. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Danny Alexander: I beg to move amendment No. 100, in clause 52, page 25, line 31, at end add—
‘(6) The Secretary of State must provide the panels with—
(a) an annual report considering the impact of means-tested benefits on members of the scheme established under section 50,
(b) an annual report assessing the quality of qualifying schemes’.
I will not take long with this. The amendment makes a point which, although extremely important, is one that we have debated at an earlier stage. The amendment proposes that, in order to support the work of the panels, it is important that the panel members understand the broader context—the backdrop—against which the scheme is operating. Clearly, members and their representatives, particularly those on the members’ panel, will therefore have a specific interest in how the benefits that members are receiving, or are likely to receive, are interacting with the wider pensions environment. This is particularly true in the pensions environment, as it relates to means tested benefits, but also the wider environment that pensioners are exposed to in terms of means tested benefits. Throughout the earlier stages of the Committee’s deliberations we looked at the importance of housing benefit in this context for some pensioners.
The amendment seeks to oblige the Secretary of State to provide the panels with information: first, that concerning the impact of means tested benefits for members of the scheme; and secondly, whether the way in which the concept of levelling down is happening or not. That will also be a matter of concern for the panels. That is the point of the part of the amendment that refers to
“an annual report assessing the quality of qualifying schemes”.
In case the Minister is in any doubt, I repeat that I welcome the commitment he made earlier in our deliberations to undertake a report suggested by Help the Aged on the broader issue of means testing. That will be subject to further consideration and debate in due course. It is also important that information is provided to the panels as they carry out their work, to enable them to understand the context in which the personal accounts are operated. I look forward to the Minister’s response on that point.

Mike O'Brien: I am slightly perplexed by this amendment. It is entirely appropriate that we should debate whether it pays to save and also issues around levelling down. The members’ panels, however, are primarily going to be looking at how the scheme itself operates. It is primarily an internally-focused operation looking at whether this pension scheme is properly run, adequately delivering to the members and whether its strategies are taking account of the views of the members. I think that is a pretty big job.
What the hon. Gentleman is suggesting is that members of the panel should be more outward-looking, examining the impact of personal accounts on levelling down, the benefit system, whether it pays to save and that they should be aware of these things because of the impact on members. I appreciate that these things will have an impact on the members, I am just not sure what impact the members’ panel could have on those things as a members’ panel. It is essentially looking to the board of trustees and ensuring that the board of trustees is doing things that are in the interest of the members. It is a sort of sounding board for the trustees on the operation of the pension scheme.
So while I think these are perfectly proper and legitimate issue which we can debate in a wider context, I am just not sure that they are what I would expect the members’ panel to be focusing on. They will have enough work to do without focusing on those issues. I have no problem with them having information about these things, I am just not convinced that this is what they ought to be up to.
I am confident there will be a proper flow of information between the trustee and the panels, the trustee board will be as keen as the government to make all this work. I do not think it is appropriate to specify the types of information they need to fulfil their duty, to some extent that is for the members’ panels to determine for themselves. I hear what he says about research and if they wanted to get reports on pays to save and whether there is any levelling down, I do not see any reason why they should not get that, but what I would hope if I were ever a member of personal accounts is that whoever is on the members’ panel will be watching the decisions being made by the trustees board and ensuring the trustee is acting in the interest of the members and that investment decisions, the management, the operation, the procedures, the processes of collection and administration and payment are all ones which are in the interests of the members. I just see a different role so I am a little perplexed by the amendment. I do not dispute that the issues are ones we need to discuss, I am just not sure they are issues for the members’ panels. I do not object to them discussing them, it is a matter for them.

Danny Alexander: I am sorry if the Minister is perplexed. The amendment was not meant to be perplexing and he is right to say that in carrying out their work, the members’ panel obviously has to be focused primarily on the operation of the scheme, decisions made by the trustees and so on, but as he also said, one of the roles of the members’ panel is to make sure the scheme is adequately delivering to members. The point of this amendment is simply seeking to draw this out and in his comments I think he accepted that this was an area where the members’ panel might wish to have information from time to time, and, if they did, there would be no problem with them having it. So, in a sense, I regard my point as having been satisfied by the Minister, and therefore I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 52 ordered to stand part of the Bill.

Clause 53

Contribution limits

Nigel Waterson: I beg to move amendment No. 28, in clause 53, page 25, line 34, at end insert
‘save that the employers’ contribution shall be fixed at 3 per cent. of the amount of jobholders’ qualifying earnings in any pay reference period.’.
This is a fairly simple amendment, harking back to earlier clauses—which is very much welcomed by employer organisations like the CBI—and clearly sets out a 3 per cent. employer contribution in the Bill. We had a fairly prolonged debate about this issue only the other day, in the context, I think, of a Liberal Democrat attempt to jack that up to 5 per cent. But we managed to defeat that—or at least persuade them of the error of their ways—on the basis that this was all part of the post-Turner settlement, as it were.
It is important that that be in the Bill and I cannot imagine that there can be any controversy about also writing it in to clause 53, which deals with contribution limits. There are other issues regarding what should be in the Bill and we will come to those in later amendments.

Mike O'Brien: I want clarification about what the hon. Gentleman’s intention. It has always been argued that the 3 per cent. should be the minimum employer contribution. His amendment would make it the only possible contribution. Is that his intention?

Nigel Waterson: The Minister makes a good point, in which case we will have to recast the amendment. If the Minister accepts the principle that we should write 3 per cent. into clause 53 we would be very happy with that.
It just seems to me that if there is a clause headed “Contribution Limits”, then it is worth spelling out what is envisaged on contributions. We know the position at the moment is that we start off with an 8 per cent. overall level of contributions: 5 per cent. from an employee, 3 per cent. from employers. Again, this point was quite hard fought the other day on the basis that, if some future Government or personal accounts board wanted to come back and argue for a higher statutory employer contribution, they would have to do that by way of primary legislation. I think that remains the Government’s position, and I am sure our position as well—and that is the kind of reassurance that employers are looking for.
If the principle is acceptable to the Minister—I was not going to press this amendment to a vote anyway—I am sure he can find a way of setting out even more issues about contribution levels, including the 8 per cent. overall figure, into clause 53, which just seems a logical place to put it, despite the fact it appears earlier in the Bill.

Danny Alexander: The points made by the hon. Member for Eastbourne are ones that we, the Liberal Democrats, would wish to associate ourselves with. There is clearly a question about employer contribution and how it can be maintained at the 3 per cent. level that has been promised, and that is the expectation. An amendment such as this—which makes it clear that there would have to be further primary legislation if that were to be changed—would give the appropriate reassurance for which employers would certainly be looking.

Mike O'Brien: Clause 18 says
“the employer’s contribution must be at least 3% of the amount of the jobholder’s qualifying earnings in the pay reference period.”
It is in the Bill already. I am not sure there is any point in putting it into this clause. It might confuse the courts, who may think there is some other further point.
We cannot accept the amendment proposed by the Conservatives, on the basis that it makes 3 per cent. the contribution; we have always made it clear that we regard it as a minimum contribution. We expect many employers will want to make a contribution higher than 3 per cent. We think that is a matter for them. That is why we have worded clause 18 in the way we did, saying that the employer’s contribution must be at least 3 per cent. of the amount of the jobholder’s qualifying earnings. I cannot see any point in putting it here.
I thought the Conservatives had taken a view that the employer’s contribution should be held at 3 per cent. which somewhat surprised me. I see now that that was not the intention—so that is clearer—but I do not see any point in putting it in twice. I can see a point in not doing it, in that the courts might want to know why it was there twice and whether this meant something slightly different. I am not convinced of the argument and do not see why this is necessary. I regret I cannot accept the amendment.

Nigel Waterson: I am happy to be cajoled by the Minister. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson: I beg to move amendment No. 77, in clause 53, page 25, line 34, at end insert—
‘(1A) The Secretary of State must in each tax year from 2005 determine whether the amount prescribed in subsection (1) has maintained its value.
(1B) If the average earnings index (including bonuses) for the whole economy for September of a year is higher than the index for the previous September, the Secretary of State shall as soon as practicable make an order in relation to the amount in section (1), increasing the amount, if the new index is higher, by the same percentage as the amount of the increase of the index.’.

Janet Anderson: With this it will be convenient to discuss the following:
No. 29, in clause 53, page 26, line 1, leave out subsection (3) and insert—
‘(3) There shall be an absolute prohibition on transfers between the pension scheme established under section 50 and other pension or savings schemes, and jobholder contributions shall be limited to £3,600 in any one year.’.
No. 103, in clause 53, page 26, line 1, leave out subsection (3) and insert—
‘(3) A member may make payments that are not contributions for the purposes of provision under subsection (1) up to a maximum of 2 per cent. of the standard lifetime allowance’.
No. 30, in clause 53, page 26, line 1, leave out subsection (3).
No. 58, in clause 53, page 26, line 6, leave out subsection (5).

Nigel Waterson: This group of amendments will take a bit more time. They are all around the issues of contribution caps and transfers into and out of personal accounts.
I will quickly go through what the amendments seek to do and then give a bit more background. It is logical to start with amendment No. 29 which incorporates an absolute prohibition on transfers between the pension scheme—the personal accounts—and other schemes and also says that the contributions of the jobholder should be limited to £3,600 in any one year. Amendment No. 77 deals with how to maintain the value year-on-year of that contribution and I will return to that in a moment. Amendment No. 30 seeks to take out subsection (3) which would allow an order to change contribution levels. Subsection (5) would be taken out under amendment No. 58 which gives the Secretary of State power to repeal this section.
There has been a long and fairly fierce debate about contribution limits. There are very powerful arguments on both sides. On the one hand are ranged the consumer organisations and others, such as Age Concern, who argue the case for more flexibility in either a lifetime limit or a higher annual contribution cap or transfers in, either a one-off in year one or subsequent years of capital amounts.
Some of the arguments focus on people who want to catch up contributions—perhaps some of the people I talked of earlier who do nothing between now and 2012, assuming that is the date—or people who want to put savings, an inheritance or divorce settlement into personal accounts. I apologise to people whose arguments I am paraphrasing. I will perhaps touch upon one or two in more detail and perhaps in their own words in a minute.
Ranged on one side are a group of people, especially those representing the industry, who argue very strongly and persuasively that we must take every step that we can in legislation to ensure that personal accounts, even if they are a success in their own right, do not erode existing pension provision and compete as a non-advice, low-cost alternative to other pension savings. We have debated at length the nightmare scenario, which was conjured up by the Pensions Policy Institute, of personal accounts being quite successful, but the overall pension savings in the country sharply declining because of levelling down and so on.
On the other side of the argument is the mantra of simplicity. Mr. Tim Jones seems to be getting a good run today. He raises this every time I have any kind of conversation with him, and I am sure the same goes for Ministers. As he and Paul Myners have said to me—and, I am sure, to everybody else who takes an interest in these things, including the Minister—every extra bell and whistle will add to the cost of personal accounts, and might add to the risk of them not being ready by 2012. As will become apparent when I deal with these amendments in more detail, I side with those who say, “Let’s not take risks about implementing personal accounts. There might be reasons for reviewing things later, but we need to be absolutely sure that this is ready to go in 2012,” and those who say, “We have a pretty good private pension set-up in this country as it is. It has taken a few knocks, but it is still a lot better than many other countries’, and we do not want to see that eroded or threatened by this new personal accounts system.”
Let me deal first with the annual contribution cap. The Pensions Commission originally proposed an annual limit of about £3,000, in support of which it said:
“This approach would mean that lower earners would effectively be free of any cap (since they would be unlikely to be able to use the freedom) while limiting the extent to which higher earners could use the NPSS as a low-cost alternative for pension saving that is already in many cases occurring.”
It is clear from that that the commission sussed out quite early on that there was a risk of levelling down and that that had to be dealt with clearly.
We then made a quantum leap to the December 2006 White Paper, when the Department for Work and Pensions suddenly popped up with the suggestion that the limit should go up to £5,000. It also proposed that the Personal Accounts Board should be able to review the limit, and suggested a higher limit of £10,000 in the first year. I know that the Minister has been turning that over in his mind, so he might have something to say about it. The Work and Pensions Committee also examined at the issue.
The £5,000 announcement caused, to put it mildly, a bit of a flurry in the industry, because it emerged that a £5,000 cap would, in theory, incorporate something like 94 per cent. of all existing pension provision, which was not at all what Lord Turner had in mind. We in the official Opposition were quite taken aback by the proposal. We did not know where it came from, what was behind it and who was in favour of it—it was certainly not the industry—and we did not think that it was sensible. We made it very clear, both in public and in private, that if the Government wanted to proceed with that figure, they would jeopardise the whole consensus process and that we would certainly not sign up to it. The Government got their mind right, to quote another famous film, and came up with a figure of £3,600 at 2005 prices, which we were content with, and a mini-consensus has grown up around that figure since, which is good news. We would still urge the Government to keep the £3,600 figure, and the Minister has made it abundantly clear that that £3,600 at 2005 prices is still the policy.
We are trying to help out the Minister with amendment No. 77, which deals with uprating the figure. However, the figure does not appear in the Bill, or even, I believe, in the explanatory notes. We think that it should, and some of the witnesses agree with us. I will cite what some of them said in a moment.
I give credit to the Engineering Employers Federation and Mr. David Yeandle, who came up with the wording of amendment No. 77. It is designed to make it clear that the Government will not only carry through their commitment to an annual limit of £3,600, based on 2005 earnings levels, but that they are committed to that limit
“being uprated with earnings from that point to implementation from 2012.”
It cites that the precedent for such tight drafting as section 34 of the Employment Relations Act 1999, which is used to implement, among other things, the maximum weekly pay that is used for calculating statutory redundancy pay annually in line with the retail price index. This is not rocket science.
In our evidence session, I was underwhelmed by the Minister’s response when I quizzed him as to why £3,600 was not mentioned at all in the Bill. He said:
“£3,600 is a 2005 figure”,
which is correct,
“which will be annually uprated as we deal with issues in terms of the economy, inflation and other factors. Therefore we want to ensure we do not enshrine in statute something that we then plan to amend year on year. ”
That is fair enough, up to a point. He continued:
“For those reasons, enshrining that figure in legislation would not be wise but we would intend to say that very clearly the policy is that that is the figure; we do not intend to increase it other than by the increases in the level of inflation.”——[Official Report, Pensions Public Bill Committee, 17 January 2008; c. 113, Q138.]
Why am I not convinced by that? All sorts of pieces of legislation are peppered with examples of figures that change. At the moment, £3,600 may not be the right figure. However, I have never claimed that any of my amendments or new clauses is the ultimate. We do not have all these clever people working for us, and if the principles are accepted, the parliamentary draftsmen can go away and sort it out.
However, given that this is such an important issue, why can it not be in the Bill? The argument that one should not put a figure in legislation because it will change is, with respect, completely bonkers. Figures have been put in all sorts of legislation, such as tax and minimum wage legislation, and those figures change. There is almost invariably a formula in the legislation setting out how they are to change. With respect to the Minister, I do not think that that is a valid argument against the amendments.
The EEF supports a £3,600 limit. Originally, it lobbied the other way and wanted the limit to be more open and flexible, but its attitude now seems to be, “We have now alighted on this figure and there seems to be general agreement—perhaps some of it grudging—that that should be the figure, so let us make sure that it is in the legislation.”
There is also a question of lump-sum contributions and transfers. Although I intellectually understand the arguments that are put forward in favour of them, I think that there are real arguments against. I have dealt with simplicity and the erosion of existing provision. If someone had a £10,000 inheritance and decided to put that into their personal account scheme, there would be two major problems.
A lump sum would not attract the employer contribution. I do not want to reopen the whole debate—important though it is, and we have had it more than once—about the groups that will benefit from personal accounts, not benefit, or not benefit as much as they expect. Those three groups—those that will benefit, those definitely at risk and those in the middle, as identified by the PPI—will be part of the ongoing process at which we will be looking on a cross-party basis. Part of the definition of whether people are going to be better off will be based purely on an employer contribution, because that will make all the difference to whether they are going to get something out of this or not. However, with a £10,000 lump sum, there will be no employer contribution.
We also keep coming back to the issue of advice. No one is going to give any of those people specific advice on their particular situation. Otto Thoresen, as people keep reminding us, is wrestling with the oxymoron of generic advice. We will see what he comes up with in his final report—I think that the Minister said that other day that it might be published in March. Someone might well be advised not to put that £10,000 in personal accounts and to do something completely different, but there will be no one queuing up to give such specific advice.
Let me come back to what some of our witnesses said about the subject. When we saw Mr. Stephen Haddrill of the Association of British Insurers on 15 January, I asked him what he thought should be in the Bill to minimise the erosion of existing provision. He talked about his concerns on levelling down and the need to ensure that the personal account remained
“targeted at the people it is really designed for...Money speaks, and we fear then that personal accounts will get delivered for the people with more money”—
rather than the target group. He went on to say:
“That is why we do not like the idea of high levels of contribution being allowed during the year—the Minister has given assurances on that, but we do not see that £3,600 figure on the cap actually on the face of the Bill. We—
this is the view of the ABI—
“would much prefer that to be in the Bill.”
He continued to say:
“We do not see anything about transfers in from other schemes on the face of the Bill in terms of them being stopped, which is what we would like to see. I think that we should also be very cautious indeed about random lump-sum contributions—in fact, not allow them—into these schemes, because they will not be matched by an employer contribution”—
I have made that point already—
“and they will not necessarily be the right thing to do. This is an advice-free zone”—
here is the chilling bit for Ministers—
“so people will be making mistakes, and, in 20 years’ time, liabilities will be laid at the door of the Government as a result.”——[Official Report, Pensions Public Bill Committee, 15 January 2008; c. 24-25, Q31.]
I do not know who the Government will be in 20 years’ time. All that I can say with some confidence is that neither the Minister nor I will be in our posts.
I do not know whether that is significant, coming from the ABI, but I should touch on something else that Stephen Haddrill said. When he talked about additional contributions, he said:
“The real reason why we do not like additional contributions is because we think it complicates matters. We think it will be taking money out of financial pots where people have had advice and where they have got good investments and are putting them in something on which they will have no advice.”——[Official Report, Pensions Public Bill Committee, 15 January 2008; c. 37, Q52.]
That was all he has to say on that particular issue. Additionally, the written evidence of the Engineering Employers Federation stated:
“We are therefore very surprised and disappointed to see that, whilst Clause 53 of the Pensions Bill refers to the introduction of an annual contribution limit, there is no reference to the level of this limit in either the Pensions Bill itself or the Bill’s Explanatory Notes. We consider that both the £3,600 annual contribution limit and its uprating in line with earnings between 2005 and 2012 need to be set out clearly in the Pensions Bill as we feel that the absence of this detail will inevitably reopen the debate on this important issue which we felt had been resolved.”
I will take the Minister at his word when he says that he does not want to reopen the debate, and, certainly, we do not. However, the sure way of ensuring that that does not happen is to put it in the Bill. I have already said that I cannot see the remotest technical problem with a clause that takes account of £3,600 at 2005 prices.
The Investment Management Association, which has similar views, hardly surprisingly, to those of the ABI, says:
“Key to keeping the costs of the system low is ensuring that individuals can be confident that they can participate without seeking regulated financial advice.”
It goes on to talk about complications because of other contributions. It says:
“IMA therefore supports a strict annual contribution cap, with £3,600 a reasonable level, (uprated annually as appropriate) and that this should be specified in the Bill.”
Interestingly it goes on to say that it would accept a higher limit
“for the first year in which Personal Accounts come into operation...We also oppose Amendment 103”
—which we will be hearing about—
“since this would allow annual contributions of up to £30,000, taking the system well beyond its core purpose.”
I agree with that. I am delighted to see that the IMA supports my amendment to remove subsection 5, which it describes as
“an unnecessary power to repeal by Order the section dealing with contribution limits.”
It says that:
“This would be required only if Parliament were not committed to keeping Personal Accounts focused on their target market of those without current access to long term saving. While there may be a need for flexibility in the event of a future review that leads to a different consensus about contribution limits, there are sufficient powers in Clause 53 to allow the Secretary of State to change the limit in any direction. We cannot see however why it might ever be necessary to consider abolishing the limit altogether.”
There are powerful arguments on both sides of the debate. We have come down on the side that I have described. This is the purpose behind our part of the group of amendments and I hope that those arguments will commend themselves to the Committee.

Danny Alexander: The amendments cover at least three important, but distinct, areas: first, the uprating of the limit, secondly, the ability to transfer in or out of personal accounts and, thirdly, whether, in addition, there should be a lifetime limit. I disagree with much of what the hon. Member for Eastbourne has said about the second and third of those. However, on the first of those, the uprating of the annual limits, he makes a great deal of sense. Amendment No. 77 seeks an annual limit of £3,600 at 2005 prices that should then be uprated in line with the relevant index in the future. To have that in the Bill, just to be clear of the Minister’s intention, makes a great deal of sense. I will now turn to other issues where there are some grounds for disagreement.
The hon. Member for Eastbourne seeks to put in the Bill an absolute ban on transfers in and out of personal accounts. It is clear from what the Minister said elsewhere that that is a question that he seeks to review in 2017. That approach is probably a sensible one, but there are cases where, having had a period of stability in the initial phase of personal accounts—which I suspect is what the 2017 review is designed to achieve—there are circumstances in which to allow small transfers in and out would be appropriate.
We have talked previously about particular groups of people such as those with small pension pots or broken work records. Let us take as an example someone who has worked for two or three years in a relatively low income job, with a company pension scheme, who has perhaps built up a small pot which would be significantly lower than the trivial commutation limit. After a period out of work, they might come back into work and have a personal account again but have only the income and the time to build up a relatively small pot. It would clearly make sense, in due course, to allow those small pots to be combined, within appropriate limits, to allow the transfers in.
I accept what the hon. Member for Eastbourne says, and he is right that this point has been made strongly by PADA. He is right that Parliament should be conservative about adding unnecessary bells and whistles to the scheme, because the more bells and whistles that are added, the more complex it becomes and the harder it becomes to keep the charges at a low level. That would then have an impact on the benefits that members will receive. However, the critical word has to be “unnecessary”. There are some additional ways of contributing to personal accounts which I would not characterise as unnecessary bells and whistles, but which are potentially necessary to allow personal accounts to achieve their full objective. There is at least a genuine question to be asked about allowing the transfer in of other small pots so that there can be a combination which allows a decent degree of income to be realised in retirement. I hope that the Minister can say that the 2017 review will be a real review that will look at those issues in detail with a view to ensuring that the interests of members, particularly those I have described who might have a number of small pots, are met. That is why I strongly oppose amendment No. 29.
I turn now to the idea of having some additional lifetime contributions limit, which is embodied in amendment No. 103. It suggests that
“A member may make payments that are not contributions for the purposes of provision under subsection (1) up to a maximum of 2 per cent. of the standard lifetime allowance.”
Standard lifetime allowance, as the Committee will know, is currently £1.6 million. Two per cent. of this would be £32,000, approximately twice the current trivial commutation limit. We had an interesting debate about trivial commutation in which I proposed an amendment that the trivial commutation limit be increased. Amendment No. 103 would add a degree of flexibility to the system while not allowing excessive contributions to be brought in from outside. That would allow people in the target group—and this has to be of interest to the Committee—who are on low incomes and may only be able to make a relatively small contribution to their personal account, to make use of any windfall, legacy or inheritance they may have to build up what will be, in many cases, the only pension they have to ensure an adequate income in retirement.
While the hon. Member for Eastbourne is absolutely right that there would not be an employer contribution attached to any such transfer in, the obvious reason for such a transfer would be to allow growth to take place in that money so as to contribute to the overall retirement fund. That would allow them to reach a level at which they are able to benefit from an annuity or a regular income stream as opposed to a lump sum, which is all that they would be entitled to in a very small pot. I must confess that I was not in the Committee when the questions about advice were debated, though I have read with interest the record of those discussions. However, to say that the fact that such people will not be in a position to have advice is an argument against allowing a lifetime contribution limit, is not quite right. If we are to get the advice regime right—it is my understanding that that is what Otto Thoresen has been asked to look into, and it is certainly the basis on which my party’s proposals for the advice regime have been made—we must consider that there are a number of different aspects of life where better access to financial advice is needed by a range of people who will potentially be in the target audience for personal accounts. This is not just advice about personal accounts. Advice is needed about personal debt, for example.
Our suggestion—a national network of financial advice centres, perhaps operating through citizens advice bureaux—would clearly provide a vehicle where, if someone wished to ask a question about this sort of decision, they would be able to do so. People would be able to receive generic financial advice, not restricted to personal accounts, but dealing with a range of other circumstances. Such an approach would allow relevant questions on this sort of decision to be asked. So that is not a genuine objection to amendment No. 103.
I am very pleased to see that a number of stakeholders, who follow very closely the Committee’s deliberations, also support amendment No. 103. I note, for example, the EEF’s belief that individuals should be able to make the occasional lump-sum payment, in addition to the annual contribution, into a qualifying workplace limit such as personal accounts, provided this does not add disproportionately to the cost of administration, which must be kept as low as possible.
I am also pleased to note the support of Which?. It says that the Government should introduce a lump-sum contribution limit now to allow consumers to pay in lump sums such as inheritance, redundancy payments or bonuses, separate from an annual limit. That would help people to save for a comfortable retirement in line with their aspirations, and allow millions of people to achieve their aspirations, which are not currently being fulfilled. That is the Bill’s principal political objective. Likewise, the TUC has noted its support for amendment No. 103. I could go on, but I suspect I would try your patience, Mrs. Anderson, if I continued to list organisations in support of this point.
Our proposal is not a bell or a whistle; it is an essential feature to allow people on low incomes who are in the target group and may not be in a position to create, through their own endeavours and employer contributions, the size of pension pot that they wish, to make relatively modest additional payments into their personal account from time to time, with a clear lifetime limit set at a relatively low level. It would ensure that the personal accounts scheme can have the wider benefits desired by everyone on the Committee. That would be a sensible addition to the Bill, and, although I have not yet heard the Minister’s response, I would like to be permitted, if necessary, to press the matter to a Division at the end of the debate.

Mike O'Brien: I have considerable sympathy for some of the points raised by the hon. Member for Inverness, Nairn, Badenoch and Strathspey. He identifies the three key issues we are discussing: the £3,600 annual cap, the transfers in and out and the lifetime investment that people might make.
Our view is that transfers in and out should not be allowed at this time, but he will be aware from my evidence to the Committee that I have some sympathy for this idea in terms of small pots. Let us look at it after 2017, at a more appropriate time when we have reassured the industry—particularly the insurance-based, but also the trust-based pensions industry—that people will not transfer significant sums from one pension fund to another. At that time, the Minister and hon. Members can take a view on whether it is appropriate to allow small pots to be transferred in and out of personal accounts. Tim Jones indicated that there were some benefits in doing that but there is a need at this point to keep a level of reassurance for the industry and that would help with our aim of preventing levelling down, which is an important concern for all Committee members.
There has been lively debate for some time around the lifetime limit. There are strong views on both sides. I do not propose to close that debate down now. I hope that, in due course, a wider consensus will emerge. We certainly do not have that now. Closing down the debate on the £10,000 limit at this time would not be the right way forward.

Danny Alexander: I am pleased that the Minister does not wish to close down that debate. He is right that there is a divergence of view within the stakeholding community. What steps would he take to bring consensus on that important issue? Clearly, if there is to be a consensus, it would require the Bill to be amended. If such a consensus emerges, is he willing to bring forward an amendment at a later stage in the Bill to allow that to happen?

Mike O'Brien: First, we would not have to amend the Bill in order to enable that change to take place. Subsection (1) would allow that. Therefore, there is scope to allow that. It does not need to be in the Bill.
We do need to have a clear view by 2012 because there may well be people who wish to transfer into personal accounts a sum that is perhaps held in a non-pension saving pot. I am sympathetic that there is an argument but I want to look at the detail so, therefore, I am not disposed at this point to put it into the Bill.

Danny Alexander: The Minister has been very generous in giving way. To be clear on the first point he made, is it his view that, should a view come forward that a lifetime limit is desirable, that it can be done by regulation and not by primary legislation?

Mike O'Brien: Yes. Subsection (1) we believe enables us to do that. Therefore, we would not need primary legislation. We are clear that our aim is that personal accounts should complement rather than replace good-quality pension provision, in order—[Interruption.] I am sorry. I believe that subsection (3) rather than subsection (1) would enable us to do that.
As far as our overall aim is concerned, we are not seeking to replace any good-quality pension provision. That has never been our intention. Indeed, the whole process is to complement not compete or replace current provision.
In order to achieve this we have taken some specific measures to focus personal accounts on the target group. An annual contribution limit of £3,600 and a prohibition on transfers in and out of personal accounts, at least in the initial stage, are part of that process. We have consulted widely on the level of annual contribution limit which involves a trade-off between focusing personal accounts on the target group and providing individuals with flexibility to save. We have been quite clear that we intend to set the contribution limit at £3,600 in 2005 figures. We have reached a broad consensus with stakeholders that this is appropriate.
We have not put the actual amount in the Bill for a number of reasons. First, the level of the limit will not be £3,600 in 2012 because we have undertaken to uprate this figure in line with earnings from 2005.
Of course, I hear what the hon. Member for Eastbourne says about how we could have a figure in the Bill and a mechanism for adjusting it. That is possible and is certainly done in Finance Bills, but it is much easier in Finance Bills as they come around annually. We are looking at a Pensions Bill that we hope will still be looked at in 2020. Having such a figure in the Bill becomes much odder.
It is better to say that the figure will be annually uprated in line with earnings, so we are clear about where we are. We do not have any proposals to change that, and I know that the Opposition Members, should dire things happen at election time, would have no wish to alter it either. I think that the industry has the level of reassurance that it needs about the political consensus.
We have said that we would consider a higher limit of £10,000 in the first year and subsections (1) and (3) provide scope for that limit. As we have said in earlier debates, we are making pension policy for the long term. Without the benefit of 20:20 foresight, we believe it is important to retain an element of flexibility in setting the level of the contribution limit. We believe this approach makes clear our intention but does retain flexibility at the same time, and it is the right approach. So the industry knows our intention—it is all very clear—but I do not think that we need to put it in the Bill.
We have also been clear that it is our intention to uprate the annual contribution limit in line with earnings. This will prevent the value of the limit from being eroded over time as a proportion of an individual's earnings. But again, flexibility is important. Amendment No.77 would remove the flexibility for the Secretary of State to adopt another index should it become apparent that uprating by earnings is not appropriate. This amendment would also prevent the introduction of a higher contribution limit in year one.
We are considering—as I have indicated—the £10,000 limit, but we are not in the position yet to close down that debate. We have asked the delivery authority to advise us on the cost and implementation issues around a higher contribution limit in the first year of the scheme.
Amendment No.29 would pre-empt this work, categorically ruling out a higher limit in year one. We also recognise that there will be some individuals with irregular contribution patterns who may want to make one-off payments to their personal account to boost their pension savings. Consumer groups in particular have been keen for members to have this facility. I have already indicated what our view is and I do not propose to close that down now.
As far as amendments No.30 and No.103 are concerned, both affect the development of a limit—such as a lifetime lump sum—but in diametrically opposite ways. Amendment 30 would prevent the ability, whereas amendment No.103 would prescribe a limit of £30,000—significantly undermining the purpose of the limits.
As an additional measure to protect existing good quality schemes when personal accounts are introduced, Amendment No.29 seeks to put a blanket ban on transfers in the Bill. We have made clear our commitment to banning most pension transfers into and out of personal accounts. However—as always—we must allow the flexibility for exceptions. There are some very limited circumstances—such as pension sharing on divorce and, as I have indicated previously, the small stranded pension pots—where we would want to have the ability to look at these issues. Paving powers for this ban are at clause 100 of this Bill, and we plan to set out the detail in the scheme order. We will therefore have the opportunity for some further discussion at a later date.
I would like to make clear that we are committed to carrying out a review of the contribution limit and the ban on transfers in 2017. In answer to the hon. Member for Inverness’s question—we intend it to be a real review. Quite what happens in 2017 will depend on the Government at the time. But our intention is certainly that that would be a real review.
These measures are important to protect good quality provision when the personal account scheme is introduced. But they do have cost implications for the scheme, and therefore it is right that we should review them once the reforms have bedded down to see whether they remain appropriate. It is right that, following a review and a debate in the House, the Secretary of State has the power to remove the requirement for a contribution limit. Amendment No. 58 would remove that flexibility and require primary legislation should the review conclude that no contribution limit is necessary. I believe that we have the balance right in the approach we have taken to this legislation.
There are some stakeholders who have different views and seek reassurances on particular points—the £3,600 figure is one. But the way we have sought to present this, and the level of consensus around it, provides them with the level of security that they need and also enables us to keep some issues open. One of these is the £10,000 issue, where there is still a way for that debate to go and where getting a consensus is likely to be possible. It is not there yet, however, and it may well take some time—perhaps a year or so before we are in a position where the industry and the various groups are able to come together and take a view on this. I am anxious to enable that process to continue, so I hope that will not be circumscribed by these amendments. Having said that, I hope the hon. Gentleman will consider withdrawing the amendment.

Nigel Waterson: I am not wholly convinced. In one breath, the Minister talks about giving people certainty and swearing undying loyalty to the figure of £3,600 at 2005 levels. He then talks about the need for flexibility. He cannot have it both ways because there are bodies out there like the ABI which represents great swathes of the industry and is nervous about the lack of reference in the Bill and in the explanatory notes to £3,600.
I will not press the amendment to a division on this occasion, but the Minister needs to go away and think about this a bit harder because it is clear from the evidence that there are real concerns that this is a figure into which there might be some flexibility—to use the Minister’s word—built.
I also take up the point made by the hon. Member for Inverness, Nairn, Badenoch and Strathspey, when he says that some of the things he is proposing are not bells and whistles. I suppose that one man’s bells and whistles are another man’s something else. We have to be guided, apart from any other arguments, by the pleas of those—like Mr. Jones—who are going to have to try to make all this work; we need to keep it simple. We can always add complexity later on, once it is working properly. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 53 ordered to stand part of the Bill.

Clause 54 ordered to stand part of the Bill.

Clause 55

Procedure for rules

Nigel Waterson: I beg to move amendment No. 31, in clause 55, page 26, line 19, leave out ‘have regard to’ and insert ‘take account of’.
This is a cheeky little amendment but it deserves an outing. It is the procedure for rules that are made under clause 50 in setting up the scheme. The clause starts well by saying that anyone who is proposing these rules
“must publish a draft of the rules and invite comments.”
So far, so good. It then goes on to say:
“They must have regard to any comments made in accordance with the invitation.”
Having checked the Oxford Dictionary, it seems to me that to “have regard” is a pretty weak injunction on people; it might just invite the odd glance and will then be ignored completely. We are proposing to toughen that up and say, “take account of”, which is a rather sterner injunction and one which we think perfectly appropriate in these circumstances.

Mike O'Brien: Appointing a trustee body to run an occupational pension scheme, which is part of wider Government reforms, presents a challenge in balancing independence with accountability. This is exemplified in the arrangements for the scheme rules. The scheme rules will include much of the day-to-day detail of how the personal accounts scheme will be run—hence the trustee body needs to have a high degree of independence in making the rules. However, the scope of the rules will be limited by the parameters set in the scheme order, which we have previously been discussing and will be subject to parliamentary scrutiny. That approach to the rule gives Parliament control of the scope of personal accounts but allows the trustee independence in the day-to-day administration and operation of the scheme.
The amendment concerns how comments about rule changes would be considered by whoever was making the rules, whether a trustee or the Secretary of State. It may be helpful to explain what we anticipate the rules covering. The rules will include the set-up and operation of any committees that the trustee chooses to create, the establishment of an internal complaints procedure and any information about investment, such as how many changes to funds a trustee can make each year. That is far from being set in stone; it is a broad assumption based on practice in existing large schemes. We expect that the trustee generally will be responsible for making and amending the rules after the initial set-up.
The duty to consult placed on both the Secretary of State and the trustee will ensure that the views of all interested parties such as members, employers and the wider group of stakeholders are considered in the design of the scheme rules. That requirement to consult ensures engagement and involvement without fettering the independence of the trustee. The Bill already requires the rule-maker to have regard to any comments that they receive and to publish a general response. The hon. Gentleman’s amendment appears to seek greater assurance that the rule-maker will consider any comments received.
The current drafting is sufficient. The phrase that the hon. Gentleman uses—“take account of”—does not take us an awful lot further but it does appear to fetter a trustee’s freedom and independence in a way that “have regard to” does not. I appreciate that he takes us a bit further but there is both a price and a balance here, and the price in terms of fettering the independence of the trustee is one that we need to approach with caution.
I do not have enormously strong views here but I think that we are attempting to strike a balance by requiring the trustee to “have regard to”, whereas, by saying that they have to “take account of”, the hon. Gentleman raises questions such as, “How do they take account of it”? How do they prove that they have taken account of it? Do they have to do something in response?

Nigel Waterson: Alright, alright.

Mike O'Brien: I think that I have convinced the hon. Gentleman. There are signs of submission and on that basis I will sit down.

Sitting suspended for a Division in the House.

On resuming—

Nigel Waterson: I heard what the Minister had to say—he is obviously so pleased with himself that he has gone off for a mini-break or something. There is a real difference in the wording here, but I do not want us to descend into a dispute about pure semantics. In the interests of sanity, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 55 ordered to stand part of the Bill.

Clause 56 ordered to stand part of the Bill.

Clause 57

Trustee corporation

Nigel Waterson: I beg to move amendment No. 32, in clause 57, page 27, line 12, leave out subsection (3).
I have a short point, which is as much asking a question as speaking to the amendment. Subsection (3) refers the trustee corporation as a body corporate, not as having any Crown immunity or privilege. I understand the argument for that, but only a short while ago we had a debate about relieving individual trustees and others of their possible legal liabilities in certain circumstances. I am not sure how that chimes in with this aspect of the Bill, but I know that the Minister will enlighten me.

Mike O'Brien: The trustee corporation will be a non-departmental public body, which will ensure independence and accountability. If the trustee corporation was a Crown body, its staff would be civil servants and thus less independent. Standard practice, therefore, is for bodies that are not part of a Department not to be considered as part of the Crown and thus not to enjoy any immunity or privileges of the Crown. A trustee corporation will run the scheme in the sole interest of its members and independently of the Government, so its loyalty will be not to the Crown, but to the members. That means that it is more important for the trustee corporation to be without Crown status. On that basis, I hope that the hon. Gentleman is content.

Nigel Waterson: I am grateful for that, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 57 ordered to stand part of the Bill.

Schedule 1

The trustee corporation

Nigel Waterson: I beg to move amendment No. 54, in schedule 1, page 49, line 14, at end insert
‘of which at least three members shall be appointed to represent the interests of members and prospective members.’.
A series of amendments have been tabled to schedule 1. Some are on nuts and bolts issues—I am sure that we can dispose of those simply—while others relate to what I shall call the level playing field issue. We will deal with those in more detail with your indulgence, Mrs. Anderson.
Through amendment No. 54, we are saying that of the
“not fewer than 9 and not more than 15 members”
of the trustee corporation, at least three should be appointed specifically to represent the interests of members and prospective members. I anticipate that the Minister will say, “But they’re all meant to represent the interests of members and prospective members.” On one level, that is correct. However, it might be better to write into the Bill a specific requirement that at least three are appointed specifically for that purpose—perhaps from among the kind of people who might otherwise have become members of the members’ panel. I am sure that that will appeal to the hon. Member for Inverness, Nairn, Badenoch and Strathspey, given his near obsession with that issue.

Danny Alexander: As the hon. Member for Eastbourne has observed, this is an issue that I am interested to pursue. The amendment usefully serves to probe the Minister’s intentions.
As the hon. Gentleman said, the Minister will no doubt answer that all members of the trustee corporation will, in some sense, be there to represent the members. However, the amendment relates to clause 52(4), which we debated earlier, which says:
“The functions of the members’ panel may include nominating individuals to be members of the trustee corporation.”
I suspect that the group of people who are referred to in the amendment are there not because every member of the trustee corporation should be helping to manage the scheme on behalf of its members, but so that that there are representatives on the trustee corporation who are nominated directly by members, groups representing members and, perhaps, the members’ panel. The point that is being made is important. I hope that the Minister will either agree to the amendment or a similar measure, or that he will at least make clear how he wants to ensure that the members are appointed. If there is not to be such a provision in the Bill, how will we ensure that such a practice goes forward?

Mike O'Brien: The Government’s policy on member-nominated trustees applies to personal accounts in broadly the same way as other occupational pension schemes at this time. The schedule already makes clear that there is provision for section 242 of the Pensions Act 2004 to apply—for one third of the trustees to be member-nominated. On that basis, the amendment is probably not needed. Given that the scale of the personal accounts scheme means that the members’ panel will have the responsibility of nominating trustees to represent scheme members, it is going to be difficult to work out how they will do that, as we have discussed. Both hon. Gentlemen are right to say that all trustees will, by their nature, seek to represent the members of the trust and act in their best interests. That is their obligation. It is right that there should be member-nominated trustees, although there is a debate about the number of them. For example, the TUC has urged that they should make up 50 per cent., and that forms part of the discussion.
At the moment, we are looking at section 242 of the 2004 Act, so the proportion of trustees to be member-nominated would be one third. I hope that provides reassurance that the amendment is not needed. The provision that addresses the issues about which the hon. Gentleman is concerned is already in the Bill: two sub-paragraphs down from the provision to which the amendment refers.

Nigel Waterson: I am grateful for that explanation, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson: I beg to move amendment No. 55, in schedule 1, page 50, line 2, after ‘financial’, insert ‘, political.’
Again, I want to make a short but important point. Quite rightly, paragraph 2 to schedule 1 deals with potential conflicts of interest. It is important that we cater for that possibility, the most obvious of which is financial, as the measure says. Sub-paragraph (5) cites “financial or other interest”, which makes the net reasonably wide.
We are suggest that the measure should refer to “financial, political or other interest”, which would ensure that—of course, the whole question of recruitment is some way down the road—whichever Government were in power, we would not end up with political appointees being nudged in the direction of the trustee corporation. The men and women who will serve on it will be thoroughly independently minded and will, presumably, have substantial experience or expertise in this area. If they have a political background, that should at least be considered and made part of the selection process.

Mike O'Brien: What is a political interest?

Nigel Waterson: Taking one example at random—just plucking an example out of the air—the new chairman of PADA made a contribution to the now Prime Minister’s campaign fund. That is a political interest. I am not necessary talking about people who deliver leaflets regularly in a particular ward. Whenever paperwork on recruiting people to the NHS crosses my desk, there is always a bit on the form about political activity.

Mike O'Brien: The hon. Gentleman was aware—his colleagues were certainly aware—of that contribution at the time of the appointment of Paul Myners. It was not a secret in any way. It was not regarded by the hon. Gentleman’s party or anyone as a conflict of interest in any form.
We are in danger of excluding people who have a legitimate political interest. People vote and participate in politics, and they ought to be encouraged to do so. I do not think that we should be in the business of suggesting that those who have a political interest automatically have a conflict of interest. Provided that things are reasonably open, I have no great problem with political interests.

Nigel Waterson: Nor do I, but there are two parts of the measure. It sets out the definition of a conflict of interest and goes on to say:
“which is likely to affect prejudicially that person’s discharge of functions as a member of the trustee corporation.”
An example might be someone who was an active member of an extreme right-wing party such as the British National party, but happened to be brilliant on pensions. There would be no conflict of interest because that would not prejudicially affect the discharge of that person’s functions as a member of the trustee corporation. I am not suggesting that having any political interest would exclude someone automatically. To be excluded, they would have to be covered by the rest of the provisions.
This issue is important, but I do not want to labour the point about the chairmanship of PADA. We said what we had to say at the time. Everyone has now moved on, and our main concern—that of Paul Myners, too, I am sure—is ensuring that we can deliver by 2012. We still think that the amendment is important and that the Minister should look at it seriously.

Mike O'Brien: As far as I am concerned, other interests adequately cover this. If people have proper political views, I am not in the business of saying that they should be excluded, as long as there is no other conflict of interest. Defining “political interest” would be a mess and I strongly oppose the amendment. All too often there is a pejorative view in the media and elsewhere of people who are engaged in politics. We need to say that being engaged in politics is a citizen’s duty, to some extent, rather than something that should be frowned on.

Nigel Waterson: I do not want to turn the debate into a civics lesson. This is not the most important issue in the Bill, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.
Further consideration adjourned.—[Mr. David.]

Adjourned accordingly at one minute past Four o’clock till Tuesday 5 February at half-past Ten o’clock.